NATSEM analysis confirms: the burden of the budget will fall most heavily on the poorest families

National Affairs Editor

The poorest 20 per cent of Australian families will pay $1.1 billion more into government coffers than the richest households as a result of the budget, highlighting the huge inequity in the government's four-year blueprint for fiscal repair.

New analysis from the National Centre for Social and Economic Modelling has underlined how heavily the burden of budget consolidation has fallen on those less well-off, especially if they have school-age children.

NATSEM divides the community into five segments or quintiles, each with a little over 2.5 million families. It finds the poorest 20 per cent - those with $35,000 or less in disposable annual income - will forgo $2.9 billion over four years thanks to changes to family benefits, pensions and other payments.

By contrast, the wealthiest 20 per cent of households - earning $88,000 or more after tax and benefits - will suffer a $1.78 billion hit, some 40 per cent less than the lowest income families.

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Overall, those in the lowest quintile see incomes fall by an average of almost 2.2 per cent while it is a decline of only 0.2 per cent for those in the highest quintile.

The government has said it has spread the burden by imposing a budget repair levy on people earning over $180,000. But its impact on household finances is minimal, costing someone on a $200,000 annual salary only about $400 per year. Moreover, the levy will last for only three years.

According to NATSEM, in 2017-18, the year the levy will expire, the richest quintile of households will be better off by $825 million, the only cohort to be ahead at any time thanks to the budget.

The NATSEM analysis calculates the effect of the budget changes on household finances over four years, incorporating reforms to welfare, pensions and taxation, including the positive impacts of abolishing the carbon and mining taxes. It does not include the cost of the $7 Medicare co-payment to families, roughly estimated at between $200 and $300 per household each year.

The study also finds:

More than one-third of the budget cuts - $6 billion - falls on the middle quintile of households, those earning between $45,000 and $63,000.

Families with school-age children are the hardest hit. Across all income groups, they will lose $15.9 billion over four years, more than 90 per cent of the total.

Low and middle-income sole parents suffer worst of all, losing between 10 and 15 per cent of their annual income - $4000 to $6250 - on family earnings of less than $60,000 by the time the changes to welfare takes full effect in 2017-18.

The burden rises sharply for families with children over the four years of the budget. For example, a sole parent earning $60,000 with children aged 8 and 12 will lose $1808 in annual income in 2014-15 and $6278 in 2017-18.

''It's a problem when you want to fix a budget deficit by massively cutting spending and doing relatively little on the revenue side,'' NATSEM's Ben Phillips said. ''Government spending predominantly goes to those on low- and middle-incomes.''

Peter Whiteford from the Australian National University's Crawford School of Public Policy said there had not been a budget that hit the poor so hard, at least since the Fraser government.